Ponzi Scheme Defined

With rich man Madoff being all over the news lately, many have been asking “what is a Ponzi Scheme “. A Ponzi scheme involves using new investors’ money to pay off promised money to the older investors (or the first investors). Usually done with investments that go bad when dividends and payouts are promised, are not made and are still paid.

So if I want to start a Ponzi Scheme up I would start by finding an investor, let’s call him Scammee. So I would get Scammee really interested in  investing money into something that sounds promising, lets say they are dingle berries. If the investment goes well, then Scammee can get the money that was expected. Unfortunately, I had to guarantee such high payouts on my dingle berry investment that hitting my mark is going to be impossible.  This doesn’t bother me since I had the intention of spending the money on myself anyway. So I tell Scammee how my dingle berries are really doing well and pay him out. Too bad I am using his invested money to do so.

So over time, Scammee is getting paid and still thinks he has his original money invested and would be able to get it back once he sells his shares of dingle berries.  This is where a Ponzi Scam gets interesting. Either through the happiness of Scammee or me  being able to brag about his payouts, I attract new investors. Now I have picked up two new people interested in my dingle berries, Scammed and Frauded. Since I am almost out of money from Scammee and my luxurious spending habits on wine and arugula, I have to use the money from Scammed and Frauded to now pay off Scammee. This goes on and on until I either catch a plane and escape with my dingle berries intact never to be seen again, or the market tanks, everyone wants their money back and finds out how my dingle berries are a big sham.

          

We are trying to make the world a little safer from all those scammers out there trying to get our cash in underhanded, fraudulent and scammy ways. We will try and list all the scams here but if you have any scams you would like to let us know about then please write a post or comment and add to already written posts.